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How does financial vulnerability affect those in later life? 

For many of us, retirement is seen as a longed-for period of leisure at the end of years of working and raising a family, however later life can also be fraught with new kinds of vulnerability. Having recently co-created the ‘Vulnerability in Retirement’ guide with Just Group, here we discuss some of the key factors highlighted in the guide that advisers should be aware of so that they can better understand the warning signs and ensure a client’s financial wellbeing and peace of mind in their later years.  


We know, for example, that retirement can be a challenging time with some of the most significant changes we’ll experience to our physical, emotional, mental and cognitive health. There’s a shift in our social networks, we’ll experience deterioration in our cognitive and physical abilities, and we’ll feel the impact of life events on others more acutely.  


The Retirement Stages 


Vulnerability can affect us at any age, but there are some drivers or triggers that can become even more apparent as we go through retirement. The FCA has identified four key drivers of vulnerability: health events, life events, resilience and capability. Recognising signs of these four areas can be challenging, more so for the latter two, even for a mental health professional. Despite this, advisers must be able to consistently undertake this task and also must know how to support those clients who are found to be vulnerable.  


Although the current retirement age in the UK for the state pension is currently 66 for both men and women, it is often better to think of retirement being broken down into a series of phases, rather than by age, such as that used by Atchely’s theory which describes as: when retirement is far away; pre-retirement; the ‘honeymoon’ period; disappointment; reorientation; stability; and final (or terminal).  


The first stage, known as ‘pre-retirement', most commonly occurs between the ages of 55-64. This period is often filled with excitement and anticipation, during which our focus shifts from levelling up in our careers to planning financially for retirement. But there may also be a sense of trepidation. Sadly, two-million pensioners in the UK live in poverty and this number is expected to grow. It’s also worth considering that almost half of those between 50 and the state pension age have at least one long-term health condition, while the number of people providing care peaks at 56 for women and 59 for men. It can be a fraught and complicated time, with significant change. 


For most people, retirement arrives at some point between the ages of 65-74, marking the beginning of the ‘honeymoon phase’. Some research even shows that people in this age group are happier than those in any other. However, this phase typically lasts only a year or two before changing to ‘disappointment’ and ‘reorientation’, ultimately making it one of the most tumultuous and disruptive periods. This is also when we start to see the effects of age on our bodies and cognitive abilities. One-in-two adults aged 65-74 have at least one chronic disease, while government research suggests that the primary challenge for people over 70 is maintaining physical connectivity with others. 


Between the ages of 75-85 is when most individuals enter the final or ‘terminal’ phase of retirement. Besides an accelerated deterioration in physical and cognitive health, retirees will experience bereavement and loss of their social network at a greater rate than at any other time in their lives, with the average age of death in the UK currently 78.6 for men and 82.6 for women. 


Advisers must also be aware of those who are aged over 85 as this is actually the fastest-growing age group. But as can be expected, with older age comes continued problems with physical and cognitive health. A large number of people over 85 are thought to be frail, a significant number are widowed or bereaved and of course the ageing process puts a greater strain on our cognitive capability. The potential for vulnerability is at its highest level. 


What support is needed? 


When assessing retirement drivers, we know that the support required for a vulnerable client must always be determined on a case-by-case basis. For example, if a client is particularly frail, the adviser could visit them at home, instead of travelling to an office. They could find different ways to communicate important information if the client is struggling with their hearing or eyesight or help them to avoid making rushed or unwise decisions. 


In other words, monitoring for and identifying any potential vulnerabilities should be a consistent factor throughout an adviser’s relationship with a client. But as we’ve already outlined, vulnerability identification can often be particularly challenging. 


The FCA has produced numerous papers, research, and guidance to help advisers comply with Consumer Duty regulations, as have various other industry bodies. But for those looking to embed a robust identification process, the best way to identify vulnerable clients is with a third-party specialist platform which removes any subjectivity and ensures consistency across a whole client base. And, most importantly, perhaps, is that this also removes the pressure for advisers – who, in the most part, are not trained clinicians – to correctly identify vulnerability using only their own insight and instinct.  


In so doing, this will benefit both clients and advisers in the long run.  


To read the full ‘Vulnerability in Retirement’ guide, co-created by us and our friends at Just Group, please click here


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